April 4, 2020
April 4, 2020
Nothing is more frustrating than a high and seemingly unexplainable customer churn rate. Losing subscribers not only costs your company money but it often correlates with more customer complaints and a declining Net Promoter Score (NPS) score as well. While some people will cancel their accounts for reasons beyond your control, there are still systems that can be put in place that will make a subscription to your services more manageable and reduce cancellation rates. Learn how flexible payment options, a subscription pause feature, automated solutions and more can significantly reduce churn percentages.
Voluntary vs. Involuntary Customer Churn Rates
When a customer chooses to unsubscribe from your business, it’s referred to as voluntary churn. They may do this for a number of reasons such as they’re no longer in need of your services, they’re unhappy with what they’re paying for, or they simply can’t afford it. Involuntary churn refers to the customers whose credit card is declined or expired, unintentionally ending their subscription. Both of these can be prevented with the right automated systems put in place.
A Seamless Subscription System Limits Voluntary Churn
With a seamless subscription system put in place, you can reduce the number of customers who cancel because they can no longer afford your services. Initially, you want to offer trial periods so the customer can be assured that their money will be buying a quality service that they can use to benefit them or their business. You then want a system that customers can use to sign up online, manage their subscription level, and input their billing information all without human interaction. At Armatic, our subscription management system offers all of this as well as flexible plan features that allow customers to pause or downgrade their subscription when they’re short on funds. This not only helps them out and keeps them on as a customer, but it reduces your monthly churn rate at the same time.
How Involuntary Churn Rates Can Hurt Your Business
Over time, even the smallest churn rates can quickly add up and cause serious problems for your business. As a slow depletion on growth, involuntary churn isn’t always noticed right away and may have already done some damage. According to SaaStr, the average business will lose 7.2 percent of their subscribers each month due to involuntary churn.
In addition to profits, it can also affect the relationship you have with your customers. They expect to be able to use your services when needed. If their account is on hold due to a failed payment and they aren’t notified right away, they can become frustrated by the lapse in service. If your customers can’t trust you to provide them with the services they’re paying you for, it’s only a matter of time before they find someone else that they can.
Here are the steps to take to ensure involuntary churn doesn’t negatively impact your business:
1. Set Up Recurring Billing
Overdue payments make up a large chunk of Monthly Recurring Revenue (MRR) churn. When you allow your customers to sign up for recurring billing, you reduce churn rates while also helping them out in the process. It’s less of a hassle and one less thing they have to remember to do each month. This benefits you as it’s less likely they will be delinquent and automated payments make things easier for your billing department. If this doesn’t work for all of your clients, then be sure to use a system that offers your customers multiple billing plans such as pay in full and monthly invoicing options.
2. Send Automated Solutions
When a customer’s credit card fails, it may not be due to lack of funds. This will occur when a card expires or their bank freezes the account after noticing fraudulent activity or even an error on your end. They may not be aware that their credit card isn’t working, which is why it’s so important to have automated solutions set up. Instead of you or your accounts receivable department spending the time reaching out to individual customers every time this happens, put a system in place that sends them an email, a phone call, or in-app message right away to recover payments that were declined.
3. Notify Customers of Expiring Credit Cards
Likely, you are aware of exactly when the credit you have on file for each customer will expire. Rather than waiting to see if they notice and then having a failed payment on your hands, set up an automated message that lets them know ahead of time. By alerting your customers in advance that their credit card on file will be expiring, they will be appreciative and can update their payment information. Additionally, it won’t negatively affect your churn rate or leave you to deal with delinquent payments.
4. Avoid Service Lock Outs
Of course, you don’t want to give away your services but in order to keep your customers happy, a grace period should be put in place before taking away access to your services. This is especially important if you don’t have any automated notifications set up to inform subscribers of failed payments as a lapse in service as they will lose faith in your brand. Be sure to notify customers several times that they need to update their credit card information before locking them out. Even then, be sure to hang on to the customer’s account information in case they return.
5. Offer Numerous Payment Options
Offering your subscribers numerous payment options is especially important if you have many customers from out of the country. Credit cards aren’t always convenient for everyone, and if they expire, you want your customers to be able to pay right away with a different method rather than wait for them to get their new card. Armatic’s payment solutions system works with numerous processors like Quickbooks and allows you to accept credit cards, ACH, and SEPA international wire transfers from your subscribers.
If your monthly churn rate is hurting your business growth, it may be time to put some of these automated options into action. Sign up with us at Armatic now and watch as churn rates drop and revenue improves over the next few months!
BY Alyssa LeBlanc
BY Max Golovnia
BY Alyssa LeBlanc
Armatic Co-founder and CRO